Worker Loyalty, Taken to Extremes

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"It's a cost-cutting measure, but it's foolhardy in the long haul," says George Whalin, a retail consultant and president of Retail Management Consultants in San Marcos, Calif. "You can't downsize your way to success. The key is not to get rid of your best people—it's to sell more."

Circuit City did not respond to calls for comment. But when the company announced the firings, it said that the employees in question had been receiving raises above what their pay scale allowed them. Though such layoffs often reassure investors, that hasn't been the reaction on Wall Street, at least so far. The company's share price fell 27¢, to $19.23 on Mar. 28, the day of the announcement, and have slipped more since.

For his part, Loudermilk says he's stunned at Circuit City's move. "What makes a business successful is people skills," says Loudermilk, whose son is COO of the company. "You've got to love your employees and they've got to love you. They have to respect you and feel they're treated fairly." Loudermilk says his employees are paid competitively, receive 401(k)s, and pay about 50% of their health insurance premiums.

Customer Connection

The company also has a paternalistic attitude, despite the fact that it is publicly held with shareholders that include money management giants T. Rowe Price (TROW) and Vanguard Group. Loudermilk says two weeks ago a driver in a nearby location lost his brother but could not afford to pay for the funeral. "I called up the funeral home and took care of it—end of story," he says.

Loudermilk says that turnover is low because the company fosters a "flat" management structure and a family-oriented environment. Among the company's top 30 managers, he has lost only one in the last decade. Floor salespeople start at $9 an hour, and management trainees at about $40,000. For some employees, the rewards of the bonus and commission system, as well as a team-oriented sales culture, keep them motivated.

Aaron's store manager Kenitzer has been with the company for two years and now oversees the store in Carrollton. He started two years ago at $35,000 a year and now makes almost double as a base salary. He received a $5,800 bonus last quarter, will get another $7,200 next quarter, and expects another raise soon to take his base to $78,000. "It's incredible—I'll almost be at six figures," says Kenitzer.

Today, Best Buy says that it may join Aaron's in the hunt for ex-Circuit City workers. "We're always looking for great, qualified employees," says Dawn Bryant, a Best Buy spokeswoman. "If former [Circuit City workers] want to apply, we'd love to talk. The employees are the differentiators. They're not just selling products; they're connecting with customers."

Herbst is a reporter for BusinessWeek.com in New York.